Event Reminders

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January 14th, 2015

My SSISI talk
“The Funding of the Irish Domestic Banking System During the Boom”
-   tomorrow night at 6pm at RIA. More details here.

Eichengreen on his new book “Hall of Mirrors”  – Tuesday the 20th at 9am (Ed Burke Theatre, TCD).  More details here.

 

Ireland—Lessons from Its Recovery from the Bank-Sovereign Loop

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January 14th, 2015

There will be a conference on this topic next Monday, co-organised by CEPR, Central Bank of Ireland and IMF.

More details about the conference available here.  There will be a live webcast link on the day.

Central Bank Economic Letter: Interpreting data for Ireland in international banking statistics

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January 14th, 2015

here.

 

Abstract:

 

 

This Letter provides an overview of Irish international banking statistics, which detail the international financial linkages of Irish banks. The complexity of the Irish banking system, in particular the role of the IFSC, poses challenges in interpreting these data. In order to illustrate some of the issues involved, this Letter reviews the main conceptual and methodological frameworks underlying Irish international banking statistics, and highlights some of the possible pitfalls which arise when trying to interpret the data.

 

ECJ Decision

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January 14th, 2015

Potentially far reaching impact of this ECJ decision, coupled with details of the SGP changes in the ‘interpretive communication’ document Seamus blogged about yesterday. QE here we come?

 

 

Research Assistant Post

By

January 14th, 2015

I’m hiring a Research Assistant in Economics. This is a 12 month post, closing date for applications is January 31st, and the details of the job, as well as details on how to apply, are here.

SGP Revised – again

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January 13th, 2015

The latest playbook for the Stability and Growth Pact has been published by the European Commission.  Here is a link to the document along with two related press releases.

We now have this little matrix:

The Commission’s methodology puts Ireland’s output gap at close to zero so we are in “Normal times".  With public debt above 60 per cent of GDP this means that an improvement of greater than 0.5 per cent of GDP in the structural balance is required.

The numbers released with October’s budget would suggest that Ireland is on schedule to achieve this.

This shows an average annual improvement in the structural balance out to 2018 of just over 1.0 per cent of GDP. But these numbers come with a massive health warning.  The projections in the outlook are set in terms of the following qualification:

As there are still uncertainties with regard to the interpretation and implementation of the fiscal rules, there is a technical assumption that voted expenditure ceilings remain fixed at 2015 levels. Similarly, taxation measures for the outer years are not embedded in the budgetary numbers at this stage.  Priorities, which have been outlined in the Budget and Expenditure Report, will be addressed in subsequent Budgets when there is technical clarity around the quantum of fiscal space.

So no provision has been made for the promised tax cuts and expenditure increases that are being wheeled out on a regular basis.

The Commission document has lots of stuff on how they intend to account for the unknown impact of future reform measures on the unknowable structural balance. If there are going to be new caveats and qualifications every time a country is close to breaching the rules there is a risk that the SGP might become complicated!

From Ireland’s perspective it must be realised that while rules can be good they can never be perfect and there appears to be a risk that our fiscal policy becomes fixated on doing just enough to satisfy the SGP rules.  There are frequent references to the amount of “fiscal space” that is available.  This will be set relative to the Expenditure Benchmark which is likely to get increased attention when we become subject to it in 2016 upon leaving the EDP.

However, with a continuing deficit and a debt north of 100 per cent of GDP there is close to no fiscal space.  In the run-up to the crisis Ireland’s budgets satisfied the rules that were in place at the time. We reached and then stayed at the MTO of a balanced budget but that was no protection against the budgetary collapse that occurred. 

The updated rules might be better but there is no evidence that they are a panacea. If they were they wouldn’t need constant updating.

Revenue Statistics webpage

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January 12th, 2015

See new site here.

The page contains statistical information on taxes and duties for which the Office of the Revenue Commissioners is responsible, as well as further outputs linked to Revenue’s activities and links to tax related information sources on other websites. Information is presented under a number of categories:
· Tax Receipts
· Ready Reckoners
· Registrations, Assessment and Transactions
· Income Tax and Corporation Tax
· Vehicle Registration Tax
· Incidence of Excise and VAT on Oils, Alcohol and Tobacco
· Cross Border Price Surveys
· Local Property Tax Compliance Stats

Strategy for dealing with banks is working

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January 12th, 2015

Article in The Irish Times by Minister for Finance Michael Noonan is here.

It is being reported on elsewhere:

All of these seem an exaggeration of what was actually in the article and the use of single quotation marks by the Irish Independent suggests their headline is something Michael Noonan actually said. 

The piece from the Minister concludes:

I am confident that, over time, we will at a minimum fully recover the funds this Government invested in AIB, Bank of Ireland and Permanent TSB. If economic and trading conditions continue to improve over the next decade or so, the cash returned to the State combined with the value of any remaining shareholding may exceed the funds invested.

The confidence is about the recovery of the money put in by “this Government”.  That was the €19 billion put in after the 2011 PCAR exercise of which around €2.3 billion has been returned from the sale of Irish Life and the BOI contingent capital notes.  There is €17 billion to go.  The article does not say that all the money pumped into the remaining banks will be returned though is something that “may” happen. 

Part of this reported is likely the result of the byline used by The Irish Times which states that:

At the very least, the State should recover all of the money it has invested so far

It appears the sub-editor didn’t take in the actual text either. 

And, of course, there is no discussion in either the original piece or the reports of it that money received in the future after “the next decade” will have a different real value to the money used from 2009-2011 to recapitalise the banks, not to mention interest and opportunity costs. 

It is a positive that we are now considering some of the bank legacy issues as assets rather than liabilities. But the possibility of recouping money from selling stakes in the banks is not new and just as there was lots of exaggeration on the way down it now looks like we’ll get plenty of it on the way up. 

The Guarantee

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January 8th, 2015

The film will be aired tonight at 9pm.  The film is good and well worth watching for those who missed its cinema run before Christmas. 

It must though be considered in the light of being a drama and not a documentary.  Unsurprisingly it differs somewhat from the stage version, Guaranteed!, with additional characters and less emphasis on a number of the alternatives that may have been considered. 

Obviously some of the characters and most of the dialogue is fictional and we can’t be sure that the stance of individual characters is accurate, particularly in the Cowen-Lenihan exchanges.  Overall it is a good dramatisation and will probably be more accurate than the debate which is due to following the airing.

I am looking forward to The Bailout later this year.

IMF Multi-Country Report: Housing Recoveries: Cluster Report on Denmark, Ireland, Kingdom of the Netherlands—the Netherlands, and Spain

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January 8th, 2015

here.

The ECB’s Policy Target

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January 7th, 2015

The only centralised macroeconomic policy target in the Eurozone is the ECB’s 2% inflation number. Today’s flash estimate from Eurostat shows a price decline of 0.2% over twelve months. The index for the Eurozone has in fact been flat now for eighteen months – today’s number of 117.70 compares to 117.61 in June 2013.

The undershoot would be a concern in a proper monetary union operating at the ZLB: real rates are too high. In the Eurozone, which is not a proper monetary union, just a common currency area with heavily indebted states, it creates two additional problems.

The real burden of debt is not eroding at the advertised rate. If the ECB had delivered a 2% rate since December 2008, at which point debt build-up in the periphery was already manifest, the index today would be 121.6 rather than 117.7. If the ECB fails to get the rate of inflation up to 2% for another couple of years as QE-pessimists fear, the failure to hit the inflation target could add 5% or 6% to real debt burdens of sovereigns which have already had to resort to official lenders.

The second problem is the absence of any other centralised macro policy instrument, if you discount, as you should, Jean Claude Juncker’s leverage wheeze. The instrument that has fallen short is the only one available.

The inflation target should now be Olivier Blanchard’s 4% rather than the ECB’s 2%, if only to make up lost ground. If you believe that the ECB cannot or will not deliver on the inflation rate, the alternative is illegal: a fiscal expansion financed by the central bank, the kind of thing they do in real monetary unions.

TCD Policy Institute Event: Barry Eichengreen, “Hall of Mirrors”

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January 6th, 2015

Barry Eichengreen will talk about this new book in the Ed Burke Theatre (TCD Arts Block), 9am-10am on Tuesday January 20th.  All welcome!

 

  • First and only systematic comparative analysis of the two great economic and financial crises of the last 100 years
  • Provides an integrated account of experience in the US and Europe, which together constituted the epicenter of the recent crisis and were similarly at the center of the Great Depression
  • Economic analysis is leavened by anecdote and personalities, with key figures in both crises introduced and humanized
  • Shows how the history of the Great Depression shaped how policy makers perceived and responded to the Global Credit Crisis, but equally how the recent crisis will in turn re-shape how we see the Depression

 

 

SSISI Event: The Funding of the Irish Domestic Banking System During the Boom

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January 6th, 2015

I will present a paper on this topic to SSISI on Thursday January 15th at 6pm at the Royal Irish Academy (discussants – Greg Connor and Dermot Coates). All welcome!

Macroprudential regulation: policy dynamics and constraints

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January 6th, 2015

The Irish Central Bank is planning to impose macroprudential risk regulation on the domestic banking sector (see here). The general approach of the Irish Central Bank has been widely welcomed by economists, although the specifics of the proposals are controversial.

John Cotter (UCD) and I are planning a conference in September 2015 on macroprudential regulation, the fifth in our series of FMCC conferences on financial risk and regulation. Macroprudential regulation is fairly new, and there are many unanswered questions. Can macroprudential constraints on credit be reliably attuned with the business cycle and/or credit cycle? Are a-cyclical constraints on credit safer and more reliable than attempts at anti-cyclical ones? Should regulators take account of market imperfections, such as the poor performance of the Irish property development industry and the high costs of new housing construction in Ireland, in setting constraints on credit growth?

Macroprudential regulation has particular importance in Ireland, a small open economy buffeted by credit flows from bigger neighbours. The failure to impose macroprudential regulatory control on the Irish banking sector was a central cause of the Irish financial crisis of 2008-2011. During 2000-2007, within a flawed eurozone currency system, a politically-neutered Irish Central Bank ignored a runaway inflow of foreign credit into the Irish banking system. This massive credit inflow undermined the stability of the Irish financial system and led to the disastrous failure of the Irish domestic banking sector.

There is a varied range of views among economists on macroprudential regulation. This is clear in the responses to the Irish Central Bank’s policy discussion document. Three thoughtful responses come from David Duffy and Kieran McQuinn (both at ESRI) here, Ronan Lyons (TCD) here, and Karl Whelan (UCD) here. (For full disclosure, my own response to the Irish Central Bank discussion document is here.) Lyons recommends fixed, a-cyclical credit controls whereas Duffy and McQuinn argue for dynamic, anti-cyclical controls. Duffy and McQuinn stress the need for more new housing in light of fast Irish demographic growth, and the positive role of high housing prices (aided by bank credit growth) in eliciting an adequate supply response. Lyons argues that excessive bank credit growth should not be used as a hidden subsidy for a cost-inefficient building industry.

Lyons makes a case for no loan-to-income (LTI) constraint, instead relying only upon a loan-to-value (LTV) constraint for macroprudential credit control. This contrasts sharply with the view of Karl Whelan who argues for LTI-only macroprudential controls in the current Irish case. Duffy and McQuinn advocate for both controls. I share the view of Duffy and McQuinn. Lyons does not consider the importance of dual-trigger mortgage default in Ireland (that is, mortgage default which is triggered jointly by income stress and negative equity). The amount of Irish mortgage arrears is likely to remain large and volatile, and this is a key potential source of market instability. Both initial LTI and initial LTV ratios are linked to subsequent mortgage default probabilities, so both should be controlled.

There are certainly many points for discussion, which should make for an interesting conference! A formal Call for Papers will follow shortly – if there are particular themes or panels that we should include, feel free to mention them in the comments thread below.

Expectations, credit and house prices

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January 5th, 2015

Happy new year to the irisheconomy.ie community. Of course new year means new quarter and new quarter means house price reports…

The latest Daft.ie House Price report is out this morning. The PDF is available here. For me, the key takeaway is as follows: house prices fell in the final quarter of 2014 and it seems very unlikely to have been statistical noise or a seasonal effect. 35 areas are analysed in each report. For each of the first three quarters of the year, an average of 32 showed quarterly gains in asking prices. For the final quarter, this flipped, with 30 of 35 regions showing a fall. For Dublin, this was the first quarterly fall since mid-2012. (Given the size of increases earlier in the year, a one-quarter fall still leaves the year-on-year change large and positive: 20% in Dublin and 8% elsewhere.) Broadly speaking, a mix-adjusted analysis of Price Register transactions shows the same. While it is only one quarter, it seems more than just a statistical blip.

For me, the check-list of what matters for house prices contains five items: [1] household incomes, [2] demographics and [3] housing supply (“the fundamentals”); and [4] credit and [5] expectations, these last two being the “asset factors” that can create and destroy housing bubbles. None of the fundamentals changed dramatically in the final three months of the year (the only thing you could argue was a slightly higher volume of listings in Dublin), so the change after September must be due to asset factors.

The Central Bank proposed in October to cap residential mortgages as early as January 2015, although this could not affect prices directly in 2014. So the last remaining candidate is expectations.* The quarterly Daft.ie report includes findings from a survey of housing market sentiment. This survey indicates that, yes, those active in the housing market did revise downward their expectations about future house price growth, particularly in Dublin. Whereas those surveyed in September expected a 12% increase in Dublin house prices over the next 12 months, this had fallen to less than 5% by December. I expect that the Central Bank would be happy if it were the case that their proposals strengthened the link in people’s heads between fundamentals (in particular people’s incomes) and house prices.

As for my opinions on the Central Bank guidelines themselves, I submitted a response to the Central Bank’s Consultation Paper, which is available online here. The TL;DR version is “max LTV good, max LTI bad”. I made similar points at an Oireachtas hearing on this and related topics in late November.

* Some have argued that the end of Capital Gains Tax relief was what drove trends in the final months of 2014. The theoretical reasoning behind this is unclear – it is not obvious that this would affect supply more than demand – while practically speaking, it is also not clear how this would have managed to infiltrate the vast bulk of the market which is not of interest to investors. When asked what they thought was driving house prices, those active in the housing market rarely mentioned tax factors, instead picking credit and supply as the main factors.

To start 2015

By

January 2nd, 2015

Some observations on some recent issues are below the fold:

  1. The NTMA’s purchase and cancellation of €500 million of FRNs from the Central Bank
  2. The passing in the US of The Tax Increase Prevention Act of 2014 which extends the “look-through” rule
  3. The recent falls of the price of motor fuel which mean the pre-tax price of petrol is below 40 cent/litre

Read the rest of this entry »

The Irish public sector in European perspective

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December 22nd, 2014

A Round-Table event organized by the Research Programme on Building State Capacity in Ireland, UCD Geary Institute for Public Policy

Phelan Room, National University of Ireland (NUI), 49 Merrion Square

Friday 23 January 2015

9:00-9:25 Registration
9.25 Welcome (Prof Niamh Hardiman, UCD)

Session 1
9.30-10.45 – Public sector reform: trends in Europe and elsewhere

Chair: Prof Niamh Hardiman, Director of the Public Policy Programme, UCD
Prof Edoardo Ongaro (Professor of International Public Services Management, Northumbria University and President of the European Group for Public Administration)

Responses

Robert Watt (Secretary General, Department of Public Expenditure and Reform) Dr. Muiris MacCarthaigh (Queen’s University, Belfast)
Dr. Richard Boyle (Institute of Public Administration, Dublin)

10.45-11.15 coffee

Session 2
11.15-12.30 – Delivering public services in new ways

Chair: Prof Philip O’Connell, Director, UCD Geary Institute for Public Policy
Prof Koen Verhoest, (Professorship of Comparative Public Administration and Globalization, University of Antwerp)

Responses

Prof Colin Scott (Principal of the College of Human Sciences, UCD)
Prof Tony Fahey (Vice-Principal for Research and Innovation, College of Human Sciences, UCD)

This event is supported by UCD Geary Institute for Public Policy.

Admission is are free but places are limited.

Please reserve a place by emailing geary@ucd.ie by 5pm on Friday 16 January 2015. Please indicate clearly whether you wish to attend Session 1, Session 2, or both:

Session 1, 9.30-10.45 – Public sector reform: trends in Europe and elsewhere Session 2, 11.15-12.30 – Delivering public services in new ways

Not Quite Checkmate for the Bundesbank Germany Appears Defeated Over QE, But Might Still Dictate Terms of Surrender

By

December 22nd, 2014

This WSJ article provides an overview of the current situation – here.

Mario’s Twelve Days of Christmas by Gavin Kostick

By

December 22nd, 2014

Mario’s Twelve Days of Christmas.

On the first day of Christmas my true love sent to me
A printing press and lots of QE.

On the second day of Christmas my true love sent to me
Two percent inflation
And a printing press and lots of QE.

On the third day of Christmas my true love sent to me
Three Abe’s arrows
Two percent inflation
And a printing press and lots of QE.

On the fourth day of Christmas my true love sent to me
Four quarters growth
Three Abe’s arrows
Two percent inflation
And a printing press and lots of QE.

On the fifth day of Christmas my true love sent to me
Five percent unemployment!
Four quarters growth
Three Abe’s arrows
Two percent inflation
And a printing press and lots of QE.

On the sixth day of Christmas my true love sent to me
Six left elections
Five percent unemployment!
Four quarters growth
Three Abe’s arrows
Two percent inflation
And a printing press and lots of QE.

On the seventh day of Christmas my true love sent to me
Seven investors investing
Six left elections
Five percent unemployment!
Four quarters growth
Three Abe’s arrows
Two percent inflation
And a printing press and lots of QE.

On the eighth day of Christmas my true love sent to me
Eight bloggers blogging
Seven investors investing
Six left elections
Five percent unemployment!
Four quarters growth
Three Abe’s arrows
Two percent inflation
And a printing press and lots of QE.

On the ninth day of Christmas my true love sent to me
Nine bankers rigging
Eight bloggers blogging
Seven investors investing
Six left elections
Five percent unemployment!
Four quarters growth
Three Abe’s arrows
Two percent inflation
And a printing press and lots of QE.

On the tenth day of Christmas my true love sent to me
Ten pols a-fawning
Nine bankers rigging
Eight bloggers blogging
Seven investors investing
Six left elections
Five percent unemployment!
Four quarters growth
Three Abe’s arrows
Two percent inflation
And a printing press and lots of QE.

On the eleventh day of Christmas my true love sent to me
Eleven hawks a-crashing
Ten pols a-fawning
Nine bankers rigging
Eight bloggers blogging
Seven investors investing
Six left elections
Five percent unemployment!
Four quarters growth
Three Abe’s arrows
Two percent inflation
And a printing press and lots of QE.

On the twelfth day of Christmas my true love sent to me (altogether now)
Twelve doves a-flying
Eleven hawks a-crashing
Ten pols a-fawning
Nine bankers rigging
Eight bloggers blogging
Seven investors investing
Six left elections
Five percent unemployment!
Four quarters growth
Three Abe’s arrows
Two percent inflation
And a printing press and lots of QE.

A – printing press – and – lots of QQQQQ EEEEEE.

Another Trichet letter

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December 19th, 2014

To the Spanish Prime Minister in August 2011 (reply also published):

  • Publication: Letter from Jean-Claude Trichet, President of the ECB, and Mr. Fernandez-Ordonez to Mr. Zapatero, Prime Minister of Spain, on 5 August 2011


  • 19/12/2014 Publication: Reply from Mr. Zapatero, Prime Minister of Spain to Jean-Claude Trichet, President of the ECB, on 6 August 2011
     

 

Resolving Residential Mortgage Distress: Time to Modify?

By

December 18th, 2014

New IMF WP by Jochen Andritzky here.

Summary: In housing crises, high mortgage debt can feed a vicious circle of falling housing prices and declining consumption and incomes, leading to higher mortgage defaults and deeper recessions. In such situations, resolution policies may need to be adapted to help contain negative feedback loops while minimizing overall loan losses and moral hazard. Drawing on recent experiences from Iceland, Ireland, Spain, and the United States, this paper discusses how economic trade-offs affecting mortgage resolution differ in crises. Depending on country circumstances, the economic benefits of temporary forbearance and loan modifications for struggling households could outweigh their costs.

World Bank: World Development Report 2015 explores “Mind, Society, and Behavior”

By

December 12th, 2014

here.

Managing House Price Booms: The Role of Macroprudential Policies

By

December 11th, 2014

IMF speech by Ratna Sahay here.

Economic and Social Review Winter 2014 Issue

By

December 11th, 2014

Free online:

Articles

Maternal Country of Birth Differences in Breastfeeding at Hospital Discharge in Ireland PDF
Aoife Brick, Anne Nolan 455-484
Middle Class Squeeze? Social Class and Perceived Financial Hardship in Ireland, 2002-2012 PDF
Peter Mühlau 485–509
Testing the Permanent Income Hypothesis for Irish Households, 1994 to 2005 PDF
Petra Gerlach-Kristen 511–535

Policy Section Articles

Averting Crisis? Commentary from the International Institutions on the Irish Property Sector in the Years Before the Crash PDF
Ciarán Michael Casey 537–557
How Have Contracts for Difference Affected Irish Equity Market Volatility? PDF
Shaen Corbet, Cian Twomey 559–577
Telework Isn’t Working: A Policy Review PDF
Michael Hynes 579–602

 

CSO Data Releases

By

December 11th, 2014

For the first three quarters of 2014 GDP is running 4.9 per cent ahead of the equivalent period in 2013. GNP is up 4.7 per cent on the same basis.  Quarter on quarter growth has slowed through the year though much of this is likely the result of distorting effects from the MNC sector.

The “contract manufacturing” effect that influenced the quarterly figures at the start of the year seems to have continued into Q3.  This seems to be supported by the Industrial Production data which includes this “contract manufacturing” effect and is highly volatile at the moment.  After rising by over 20 per cent in the first half of the year the volume of industrial production in manufacturing industries fell by 5 per cent in Q3 so remains at the elevated levels.  The figures show that the effect is arising in the pharmaceutical sector.

The Q3 balance of goods trade in the national accounts was around €3 billion higher than the balance shown by the Trade Statistics figures.  The difference was around €2.5 billion in Q2.

In the first nine months of 2013 the national accounting adjustments for goods trade resulted in a difference of just –€76 million between the trades balances recorded in the national accounts and trade statistics.  For the first nine months of 2014 the balance of goods in the national accounts is €7.9 billion greater than that shown in the trade statistics.

The current account of the balance of payments showed a massive surplus equivalent to 8.4 per cent of GDP in Q3.  This has been driven by an improvement in the merchandise balance (with no corresponding outflow on the services side) which is likely the result of the “contract manufacturing” effect discussed above.

It is possible (i.e. this is a guess) that the “contract manufacturing” effect is arising in an Irish-domiciled company.  If it was the Irish-resident branch of an MNC the profits would be recorded as an outflow in the BoP (and also for GNP) in the same quarter they are earned.  If it is an Irish-domiciled (or headquartered) company the profits would not be recorded as an outflow until a cash dividend is paid (assuming those dividends are paid to non-resident shareholders).  It is not appropriate to say that GNP excludes multinational sector profits.

[As an aside one might consider what impact, if any, these activities are having on Corporation Tax revenues.]

 

In November, consumer prices fell 0.3 per cent for the second month in a row (there was also a fall of 0.2 per cent in September).  Annual inflation is just 0.1 per cent.  Excluding energy products (-2 per cent) and mortgage interest (-12 per cent) inflation in the remaining 85 per cent of the index is around +1 per cent.

All charts from the CSO.

Do First Time Buyers Default Less? Implications for Macro-prudential Policy

By

December 10th, 2014

New Central Bank Economic Letter by Robert Kelly, Terry O’Malley and Conor O’Toole here.

PIIE Briefing: Rebuilding Europe’s Common Future: Combining Growth and Reform in the Euro Area

By

December 9th, 2014

Here.

Contents

Introduction
Adam S. Posen and Ángel Ubide

1 Stimulating Demand to Foster Structural Reform in the Euro Area
Ajai Chopra

2 The European Central Bank Must Act Aggressively to Restore Price Stability in the Euro Area
Ángel Ubide
Data disclosure: The data underlying this analysis are available here [xlsx].

3 Role of Fiscal Policy to Spur Growth in Europe
Paolo Mauro

4 An Agenda for Reform of the Euro Area Labor Markets
Jacob Funk Kirkegaard
Data disclosure: The data underlying this analysis are available here [xlsx].

5 Overhaul of EU Financial System Needed to Foster Growth
Nicolas Véron

Irish Economy Conference Feb 25: Save the Date

By

December 9th, 2014
 On February 25th the fourth annual Irish economy conference, organised by the ESRI, UCD and University of Limerick, will take place. The venue is the Institute of Bankers. Details of the previous three events are below. A full programme and details of how to register will be provided shortly.
If you’d like to suggest sessions or speakers, please do use the comment box below.
2014: http://www.ucd.ie/geary/newsevents/archive/ieconf/

The Distribution of Income in Ireland

By

December 6th, 2014

The Department of Finance answered an Oireachtas question about the distribution of tax units (ie individuals or couples filing jointly) during the week with the following information

All income earners for Income Tax Year 2015 (provisional)

Range of Gross Income – € Number of Income Earners
0 to 9,000 368,585
9,001 to 12,000 107,297
12,001 to 15,000 116,836
15,001 to 20,000 213,112
20,001 to 25,000 216,626
25,001 to 30,000 201,085
30,001 to 40,000 324,506
40,001 to 50,000 229,709
50,001 to 60,000 157,805
60,001 to 70,000 107,045
70,001 to 80,000 77,378
80,001 to 100,000 91,301
100,001 to 120,000 47,956
120,001 to 150,000 34,809
150,001 to 200,000 22,512
Over 200,001 24,642
Total 2,341,203
The figures are estimates from the Revenue tax-forecasting model using actual data for the year 2012 adjusted as necessary for income, self-employment and employment trends in the interim. These are, therefore, provisional and may be revised. It should also be noted that a married couple or civil partnership that has elected or has been deemed to have elected for joint assessment is counted as one tax unit.

Composition Effects and Loan-to-Value Limits

By

December 5th, 2014

The Irish Central Bank is scheduled to introduce new macro-prudential risk controls on Irish mortgage lending, with the new regulations taking effect on January 1st or soon thereafter. One of the regulations will limit most new mortgages to an initial loan-to-value ratio of 80% or less. There has been considerable discussion of the effect of loan-to-value limits on potential property purchasers, but the analysis has been very poorly framed.

The budgeting scenario has been described as follows:

“Consider a couple who wish to purchase a €300,000 property. With a LTV limit of 80% this will require that they save €60,000 for the down payment whereas if they were allowed to borrow 85% they would only need savings of €45,000.”

This oft-repeated budgeting scenario misrepresents the nature of market-wide LTV limits imposed by the Central Bank. This budgeting scenario gives the impression that the policy decision is about imposing/not imposing the LTV constraint on only one particular buyer rather than market-wide. It misses the large compositional effects since leveraged property buyers compete with one another for properties. The degree of leverage allowed in the banking system feeds into property prices, and this affects the opportunity set of purchasers. Read the rest of this entry »